Posthaste: Why the Bank of Canada keeps missing on GDP forecasts and what it means for interest rates
The third quarter has been a real thorn in the side of the Bank of Canada when it comes to trying to pin down gross domestic product, and the latest data is only causing policymakers more grief.
In the central bank’s October Monetary Policy Report (MPR), it forecasted third-quarter GDP of 1.5 per cent, a big drop from its 2.8 per cent estimate in July. After the GDP data release on Thursday, the central bank’s revised estimate for the quarter is looking like another overshoot.
Statistics Canada’s flash estimate for September GDP of 0.3 per cent, as well as zero growth in August and revised 0.1 per cent growth in July, means growth likely came in at one per cent annualized for the third quarter.
“Forecasting is a tricky business,” Derek Holt, vice-president and head of capital markets economics at the Bank of Nova Scotia, said in an email. “In fairness to (policymakers), they didn’t know when they set the forecasts in July that wildfires and strikes, including work stoppages at railways, among others, would pose as much risk to near-term growth.”
He said Scotiabank in the summer had a third-quarter GDP forecast of 2.2 per cent, though the Bank of Canada’s estimate “surprised us to the high side at the time.”
Stephen Brown, assistant chief North America economist at Capital Economics Ltd., also cited “temporary factors” such as the wildfires and railway lockouts for wreaking havoc with the Bank of Canada’s GDP projections.
“Although the actual stoppages were very short-lived, there was nonetheless a big drop in rail traffic as exporters didn’t want to risk their products being stranded,” he said in an email.
Capital Economics estimates the wildfires and railway stoppages combined took a 0.4 percentage point chunk out of
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